Out-migration, Property Taxation and Pennsylvania!

The figures are in for Pennsylvania’s out-migration and, once again, it doesn’t look good for Pennsylvanians.  The measure of good-government isn’t in it’s political spin but in the reality of the environment in which we live.  Once again Pennsylvania scores badly as  more Pennsylvanians are choosing to live elsewhere..

The Census Bureau reports Pennsylvania’s total population fell by more than 7,600 from 2015 to 2016.   We are one of just eight state that actually lost population.  While 34,678 people migrated to the state the net out-migration was 45,565.  When you calculate births and deaths the total loss to the population of the Commonwealth, you’ll find there was a total loss of 7,677 people.

It’s no secret that states with lower tax burdens are faring better than states with the higher tax burdens.  People leave Pennsylvania for a more friendly tax environment.  They leave Pennsylvania to follow jobs in other states: jobs that aren’t here because of the burden of the tax environment in the state.

Let that sink in for a moment.  We invest in a child’s education, as we should.  That child will spend 12 years in the tax-payer funded public education system.  Then, for many, it’s off to college.  Depending on where they go to school, that means more tax-payer money.

In 2014 111,000 students in higher education attended one of the 14 campuses of the Pennsylvania State System of Higher Education.  Pennsylvania’s State System of Higher Education (PASSHE) is the largest provider of higher education in the Commonwealth of Pennsylvania and a large public university system in the United States. It is the tenth-largest university system in the United States and 43rd largest in the world.

It’s not just the Pennsylvania State System of Higher Education. Pennsylvania’s other state-funded university system is the Commonwealth System of Higher Education (Lincoln, Penn State, Pitt, and Temple Universities).  The Commonwealth System of Higher Education establishes the schools as an “instrumentality of the commonwealth” and provides each university with annual, non-preferred financial appropriations.

Then there’s the grants and subsidies offered to other Higher education institutes like community colleges.  The 2016 budget for higher education came to $744.9 million dollars.

Pennsylvania spends about $30 billion each year on education.  Almost half of that comes from school property taxes with the rest coming from the Sales/Use tax and monies appropriated from other collected taxes as appropriated by our General Assembly.

The return on that investment for those who still live in the state is to watch the college graduates leave the state and then take their future income and invest that income in another state.  For every student who graduates and then leaves the state to work elsewhere, the Pennsylvania tax-payer sees no return on their investment towards that education.

We also see where Pennsylvania’s investment in the retirement of Public Sector workers is not producing its contracted obligation leaving us with a $60 billion plus unfunded-liability in the state’s pension obligations.  One has to question how many of these people are retiring elsewhere other than Pennsylvania where the tax-payer’s investment in their retirement once again goes to benefit the residents of another state.

It should be obvious that Pennsylvania has a spending problem that is leading to higher taxes and that leads many to suspect that if we could control the spending we could reduce the tax burden on the residents of the commonwealth opening doors for job creation and retaining our population with jobs and a lower tax burden.

It seems like the easy option and that’s the problem with the cut-spending mentality.  It looks at the cuts today as a win but never guarantees perpetuated results.  Spending cuts this year are never going to become permanent cuts.  It will be a constant annual battle in budgets and appropriations where the loser is always going to be the working family of the Commonwealth.

Any real reform on taxation must include caps on future spending to prevent the ease of future administrations and legislators from undoing any spending cuts we can obtain now.  I’m not saying we shouldn’t pursue spending cuts to ease the tax-burden on working families.  I’m just saying that if we think that will automatically translate into long-term tax savings were are mistaken.

Those of you who have followed my published blog know that I advocate for total school property tax elimination through House Bill and Senate Bill 76.   I am continually frustrated by those who oppose this legislation while calling for spending cuts.

In a recent post by the Commonwealth Foundation  they call for spending cuts.  They make the claim that “lower taxes starts with limiting government spending. Had Harrisburg limited spending growth to inflation and population since 2000, Pennsylvanians would be saving nearly $22.2 billion in taxes, or $6,952 per family of four.”

Here’s the thing…I agree with the Commonwealth Foundation on limiting spending growth to inflation and population so why don’t’ they agree with us on HB/SB 76.  That’s exactly what HB/SB 76 does.  HB/SB 76 caps future spending on the replacement revenue needed to eliminate the property tax to the rate of inflation and population and yet the Commonwealth Foundation will not support this legislation.  HB/SB 76 guarantees that this replacement revenue grows but is limited to inflation and population.

HB/SB 76 is also a clean bill.  It isn’t a corporate welfare bill.  It treats the business community the same way it treats the homeowner in eliminating the annual school tax on the property owned.  We don’t cut out millions of dollars and divert that into the programs where the state picks the winners and losers.  We also eliminate the needs for tax-payer subsidized property tax programs like KOZs and LERTAs.

In other words, we begin to break down the need for government agencies in administering government programs that become unnecessary under HB/SB 76.  This is another thing that the Commonwealth Foundation talks about as being a necessity and yet, when you give them a bill that delivers, they won’t support it.

Well-crafted legislation like HB/SB 76 that is written by the people will account for future spending by limiting the ability of the legislators to spend at will. HB/SB 76 realizes that there may be local need for revenue like new school renovation or construction or other locally driven need and it leaves that open through alternative funding but only when actually approved by the community.

We simply can’t expect to win the battle over our property taxes at the local level because much of the spending is driven by  Harrisburg.  HB/SB 76 realizes that accountability should lie with the state because they are the originators of the unfunded mandates that are paid for through a local property tax.  It is the state that paved the path for the pension debacle.

I suspect that is also behind why some legislators would oppose this type of legislation.  After all we’ve seen many, including the recent op-eds by the likes of Lt. Governor Mike Stack and Senator Gordner, who roll out their excuse talking points citing “facts” that just aren’t facts according to the actual bill.  When presented with the facts from the bill their tactic is to change the subject: never to admit that we are right and admit that their talking points are wrong.

Equally frustrating to me is the way the talking points referring to shifting to the Sales tax as a regressive tax while ignoring that the fact that the property tax is far more regressive.

When it comes to the sales tax if you purchase a $50 sales-taxable item you’ll pay a 6% sales tax on it.  That will cost you an additional $3.00 regardless of your income.  Under HB/SB 76 you’d pay an additional $0.50 cents to help provide the replacement revenue needed for the property tax.  Obviously if you spend more, say $250 on a sales taxable item, you’ll pay more total sales tax ($15.00) but it’s still only 6% of the cost.  Under 76 that would be an additional $2.50.   The more expensive item garners more tax revenue but it’s still only 6%…under HB/SB 76-7%.

The same applies to the PIT tax.  You currently pay 3.07% in Personal Income Tax.  If your family is earning $50,000 a year your family is paying $1,535.  The family earning $250,000 is paying $7,675.  The higher income family pays more to total taxes but it’s still the same percentage.

The Sales Tax and the PIT have not seen the increases that the property tax has.  The IFO report from 2013 on HB/SB 76 reported that the revenue generated by the Sales and PIT tax increased over the last 20 years even though the actual percentages did not increase.

Contrast this to the School Property Tax.  Chances are real good that your property taxes have increased substantially over the past 20 years.  The revenue generated from the property tax increased by 149% in the last 20 years but that’s because the millage rates have increased and the common level ratio has also been adjusted, unlike the sales or the PIT tax.

Also unlike the sales tax or the PIT tax, the amount of money you pay on your homes as a percentage of home worth varies from county to county and from school district to school district.

The median property tax in the commonwealth is supposed to be, according to tax-rates.org, $2,223.00 per year for a home worth the median value of $164,700.00.  That’s not really how it works though.  By that reasoning a $50,000 home should see a property tax bill that is at least 2/3 less or $741.00.  That’s not what we see though.

I’m going to use Lebanon County again because this is where I live.  The millage rate in Lebanon city is $27.9135 per thousand dollars of home value.  The property taxes on a $50,000 home in the city would be $1,395.68 which is much higher than one would assume looking at tax-rate.org’s numbers.

Let’s take tax-rate.org median numbers.  The $164,700 median assessed home would pay $4,597.35 in property taxes if it was located in the city or $2,374.35 more than the state average for property taxes.   A home assessed at the same value in North Cornwall would pay $3,182.37.  That’s still more than the state average but it’s also $1414.98 less than the taxes in the city limits even though those homes may simply be across the street from one another since North Cornwall borders the city limits.

We hear all the time that HB/SB 76 rewards the wealthy while punishing the poor.  The median household income in the city limits is about $32,000 in the city.  The median income in North Cornwall is about $50,000 yet the property taxes on a $164,700 home would be more than $1,400 less than it is in the city.

This is what led West Lebanon, where the children attend the city schools, to consider requesting a redistricting of their municipality to send their children to the Cornwall-Lebanon school district: they are fighting for lower property taxes.

To begin with a home is assessed at a value that very often does not reflect actual selling price.  In fact, the assessed value is usually higher than the price the home can be sold on the open market.  That already makes the property tax different from Sales and PIT tax.   With both the Sales and the PIT tax we see a tax on an actual value.  That value is determined by the market, not by some government hired assessment company.

As the market fluctuates, wages and the cost of our sales-taxable goods also fluctuate.  It an economic recession home values can drop drastically but that drop in value will never see a like adjustment in the property taxes on a home.  In fact, looking at the historic trends, during a recession taxes actually increased on homes whose values had dropped as a result of the recession.  That’s what our opponents like to call stability.

That’s what I call paying taxes on property you don’t actually own.  If you home is assessed at a value that is higher than it can be sold on the open market your are paying taxes on property worth you do not own.  That’s not stability…that’s extortion!

The government doesn’t hire people to assess the taxable value of the item you purchase or the wages they think you should be earning and then tax you on that imagined value.  Your home, however, is taxed based on an assumed worth.

Lt. Governor Stack also make’s the claim that the business community pays 25.6% of the property tax burden.  That’s true (sort of)! What’s wrong are his conclusions.

His logic for his opposition is that we must continue to punish the 74.4% of the homeowners to avoid giving business an elimination of the school property tax.  What he doesn’t tell you is that the homeowners paying property taxes pays 100% of their own property taxes even though their property earns no income and then they pay the property taxes for the business community through higher prices for goods and services making it more difficult for those businesses, especially smaller businesses, to remain competitive.

In fact, the system of property taxation gives an unfair advantage to the larger more-corporate box stores.  The larger stores can spread that cost of their property tax over pricing on more goods than it’s smaller counterpart giving the larger store a competitive edge over the smaller family-owned business that has nothing to do with the market and everything to do with government control through taxation.

When you factor in the “Cascade Effect” of the property tax we are paying much higher prices for our goods and services than we should be paying all to support a system of taxation where the only uniformity is its non-uniformity.  It is uniform only in that its variance from district to district and even from home to home is consistent and guaranteed.

Using taxation to force cost on to the consumer has never worked well for the consumer or for the business.  Driving up the costs for our goods and services through taxes that are passed back down to the consumer only limits the purchasing power of the consumer giving them less total disposable income that could go back in to the economy.

When the consumer is determining how and where his hard earned income is spent there is more economic freedom.  Why the government decides, there is tyranny no matter how benevolent that tyranny is to those the government determines should benefit.

It’s not like the business owners, the CEOs and the managers are suddenly exempt from paying taxes to help fund education but that’s what Lt. Gov. Stack would have you believe.  Those owners, CEOs and managers will still be paying the PIT and the Sales /Use tax for their personal purchases just like the rest of us.

The Lt Governor says “That plan (HB/SB 76) would have hurt small businesses as well. Because many local mom-and-pops pay the personal income tax rate, it would have shifted a huge chunk of the tax burden from big companies (often headquartered in another state) onto the backs of small ones.”

Well gee, the headquarters in another state already isn’t paying property taxes in this state on that headquarters building so what’s his point.

Does he mean to imply that the local managers in that corporate-owned business aren’t paying a PIT tax or don’t pay a sales tax when they go out shopping with their family? Besides, the corporation isn’t paying that property tax….they are adjusting prices so that the rest of us are paying for it.

We’re also seeing a rise in the corporate-owned chain stores using their legal teams to fight back against the property taxes and appealing their assessed values.  When they win, and they often do, guess where that lost revenue gets redirected….on to the rest of the community through higher millage rates on everyone else including on the backs of those smaller mom-and-pops who can’t afford to legal teams to fight their assumed and assessed property worth determined by a government-hired assessment company.

It is the existing system that pushes things on to the backs of those same mom-and-pop stores Stack claims to want to protect.  The property tax is hurting those businesses.  The high property taxes in malls drives up the cost of rent making it harder for the mom-and-pop to compete in the convenience of the mall environment where the shopper has ease of parking and  protection from the weather while shopping.  Without the property tax. mall rental space would be lower making it easier for the local mom-and-pop to establish a business in that environment.  Look at your local mall food court…how many of the restaurants are completely locally owned and not part of a major chain?  Look at the shops in those malls.  How many are locally owned mom-and-pops and not part of a chain?

Now ask yourself why?

Certainly reigning in government spending would help ease the burden but it won’t fix the disparity of the property tax problem.  Cutting spending at the state level for education funding without reducing many of the mandates and the bureaucracies involved in education will only result in higher education costs through the local property taxes.   Without the elimination of the property tax the legislators have no need to fix the unfunded mandate problem because they don’t have to be held accountable for the tax increases they mandate that take place at the local level.

The pension problem we face in this state will never be dealt with the way that it needs to be as long as the state legislators can pass the responsibility of paying for it down to the local property owners. Paycheck protection will never be viewed as the important issue it is as long as the property tax exists because they can shift that responsibility down to the local school district.

Keeping taxes in check at the state level is a good thing as long as institutions like the property tax do not exist where the cost can be tax-shifted to local communities driving up their property taxes and making them pay more for the goods and services they purchase and use at the local level.

Cap that funding into an account that is sealed from budget appropriations the way HB/SB 76 does and the responsibility for the unfunded mandates reverts back to Harrisburg where they would have to become accountable for the spending.  That then becomes the only way to realize the spending cuts necessary to do what must be done and to see those cuts become more permanent in nature.

Place all future local increases into a no exception voter referendum contract that way HB/SB 76 does and you restore real local control to the locals.

You see, to my way of thinking HB/SB 76 isn’t just a good bill for the issue of property tax elimination.  Its mechanisms should be studied and applied to every reform measure the state faces.  It should become the shining example of the way things should be done.












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